President Donald Trump on Friday signed the “Paycheck Protection Program Flexibility Act of 2020,” after the Senate had late Wednesday night passed the House bill that creates more flexibility for borrowers using PPP funds.
The bill extends the time period for businesses to use funds from eight to 24 weeks and changes the ratio from 75/25% to 60/40% for payroll to other fixed costs.
Here is a summary of the legislation, compiled by the AICPA:
- Current PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. New PPP borrowers will have a 24-week covered period, but the covered period can’t extend beyond Dec. 31, 2020. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
- Under the language in the House bill, the payroll expenditure requirement drops to 60% from 75% but is now a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven. Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75% threshold isn’t met. Rep. Chip Roy (Texas), who co-sponsored the bill in the House, said in a House speech that the bill intended the sliding scale to remain in effect at 60%. Senators Marco Rubio and Susan Collins indicated that technical tweaks could be made to the bill to restore the sliding scale.
- Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
- The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
- New borrowers now have five years to repay the loan instead of two. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%.
- The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.
More details: “PPP forgiveness changes coming as Senate passes House bill” (Journal of Accountancy, updated June 5)
PPP Loan Forgiveness Calculator
A PPP Loan Forgiveness calculator, developed by the AICPA, remains available for download as an Excel spreadsheet. The template is based on interpretations of the CARES Act and guidance released through May 22 and is current as of June 2.
NOTE: This loan forgiveness calculator is based on the original CARES Act and uses an 8-week covered period. The provisions in the Paycheck Protection Program Flexibility Act of 2020 are not addressed in this resource.
Some assumptions are noted in the calculator template, along with a disclaimer that in instances where SBA guidance is unclear, a CPA’s judgment and interpretation of the CARES Act may be necessary.
Other PPP Resources
The PPP Loan Forgiveness Services Matrix is an AICPA tool (updated as of May 27) to help CPAs navigate their engagements or other services around documenting expenses related to PPP forgiveness.
The AICPA’s Firm Services/PCPS team embedded links into the matrix that connect to sample letters for various engagements and documentation, along with links to guidance that CPA firms should consider for each type of service and client relationship.
This URL for this “one-stop shop” to help small business clients will always link to the most updated version of the document:
The Firm Services/PCPS team of the AICPA is posting other new resources regularly to their PPP Resources Center for CPAs.
PPP Loan Forgiveness Services Matrix is part of the AICPA’s COVID-19 Resource Center.
Keep up with all SCACPA updates specific to the COVID-19 situation at https://www.scacpa.org/covid-19-response-and-resources.